Why the 10-year US Treasury yield matters

This bond, which is sold at auction by the U.S. government, also tends to signal investor confidence. When confidence is high, the 10-year Treasury bond’s price drops and yields go higher because investors feel they can find higher returning investments and do not feel they need to play it safe.

Treasury bond yields (or rates) are tracked by investors for many reasons. The yields on the bonds are paid by the U.S. government as “interest” for borrowing money (via selling the bond). What does it mean and how do you find yield information?

When confidence is low, the price goes up as there is more demand for this safe investment and yields fall. Often the price of U.S. government bonds is impacted by the geopolitical situations of other countries with the U.S. being deemed a safe haven, pushing the prices of U.S. government bonds up (as demand increases) and lowering yields.

Another factor related to the yield is the time to maturity such that the longer the treasury bond’s time to maturity, the higher the rates (or yields) because investors demand to get paid more the longer the investment ties up their money. This is a normal yield curve, which is most common, but at times the curve can be inverted (higher yields at lower maturities).

Why is the 10-year Treasury yield so important?
The importance of the 10-year Treasury bond yield goes beyond just understanding the return on investment for the security. The 10-year is used as a proxy for many other important financial matters, such as mortgage rates.

10-year Treasury yields.
Because the 10-year Treasury yields are so closely followed and scrutinized, knowledge of the historical pattern is an integral component of understanding how today’s yields fare as compared with historical rates. Below is a chart of the yields going back 10 years.

The Bottom Line.
The 10-year Treasury is a economic indicator in a sense that its yield tells investors more than the return on investment. While the historical yield range does not appear wide, any basis point movement is a signal to the market.

Perhaps the most relevant aspect is in comparing current rates with historical rates, or following the trend to analyze if the near term rates will fall or rise based on historical patterns. Using the website of the U.S. Treasury itself, investors can easily analyze historical ten-year treasury bond yields.

Treasury bond yields (or rates) are tracked by investors for many reasons. The yields on the bonds are paid by the U.S. government as “interest” for borrowing money (via selling the bond). When confidence is low, the price goes up as there is more demand for this safe investment and yields fall. Often the price of U.S. government bonds is impacted by the geopolitical situations of other countries with the U.S. being deemed a safe haven, pushing the prices of U.S. government bonds up (as demand increases) and lowering yields.

While rates do not have a wide dispersion, any change is considered large and highly significant changes– of 100 basis points– over time can redefine the economic landscape.

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